UAE hikes petrol prices 24%, cuts diesel 29%

ABU DHABI — The United Arab Emirates (UAE) will hike the retail price of petrol by 24 per cent, but prices will still be low by international standards, a government committee announced on Tuesday.

From Saturday, the price per litre of gasoline at the pump will be 2.14 dirhams (58 US cents/53 euro cents).

However, diesel prices will be cut by 29 per cent to 2.05 dirhams.

The committee said the prices will be adjusted each month.

The UAE, one of the world's leading petroleum producers, decided last week to end subsidies on fuel, a move that is expected to save billions of dollars a year.

Fuel prices in the federation are already the highest of any of the six Gulf Arab states, but still among the lowest in the world because of the heavy subsidy.

Energy Minister Suhail Al Mazrouei said last week the decision was "in line with international economic trends to liberalise markets and boost competitiveness".

He added that it would also cut fuel consumption and encourage greater use of environmentally friendly transport alternatives such as electric cars.

In 2013, the transport sector was responsible for 22 per cent of harmful emissions in the UAE, the minister remarked.

Like in other Gulf states, the UAE's revenues have been hit hard by the sharp drop in crude prices since last year.

The International Monetary Fund (IMF) has forecast that the UAE will post a budget deficit this year, its first since 2009, of 2.3 per cent of gross domestic product, or around $9.0 billion.

In January, Kuwait began selling diesel, kerosene and aviation fuel at market price, but left heavy subsidies in place on petrol and electricity.

Bahrain and Oman, which are already posting budget shortfalls, have also said they plan to cut subsidies, especially on fuel.

Organisation of Petroleum Exporting Countries kingpin Saudi Arabia, whose energy subsidies bill is estimated by the IMF at $108 billion this year, is not planning any cuts. Petrol prices in the kingdom are the cheapest in the Gulf and among the lowest in the world.

Although top officials such as the central bank governor have called for eventual reform of energy subsidies, a significant proportion of Saudi citizens have low incomes, in contrast to the UAE. This could make raising fuel prices politically much more difficult.

"The removal of transport fuel subsidies in the UAE may set a positive fiscal precedent for other sovereigns in the region, including those where the public finances are under more pressure," credit rating agency Fitch said in a report.